The Opportunity Cost of Water

With the continuing drought in South Texas, the issue of how to allocate scarce water resources has flared up again. Rice farmers south of Austin want water from the Colorado River for their crops; yet the two storage lakes on the river, which provide most of the Austin area’s drinking water, are less than half full.  As one rice farmer told the the Austin American-Statesman: “Water availability should be based on sound hydrology and not on political pressure.” It should be based on neither—it should be based on economics—what is the opportunity cost of the water?  In particular, one might ask why the U.S. is growing rice at all.  It is hard to believe we have a comparative advantage in rice-growing and that it shouldn’t all be imported.  That’s especially true about rice grown in dry South Texas. We grow rice because of entrenched interests that obtained water rights many years ago.  The rice farmers get heavily subsidized water precisely because of the political pressure this man deplores—and they now want to compound the effects of bad policy.

An Economist's Guide to Year-End Charitable Giving

The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it).  Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.”  Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.

Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios

Administrative expenses tell you nothing about if the charity’s work actually does anything, or if it does, how much good it does. The proper question to ask should be “for every $1 I give, how much good is generated?” and not care about how the sausage is made. Different organizations might have different business models, and two organizations might approach the same problem, say clean water in poor villages from two different approaches – perhaps digging new wells versus cleaning existing water sources. Don’t ask who spends less on expenses like copier toner and legal costs, ask which organization will get clean water to the most people with your money. I went into this in more detail in a post a while ago, and when I compared charities’ ranks on a site that rank using overhead ratios, to a site that does thorough research on effectiveness, organizations that were rated as more effective also tended to have slightly higher expense ratios.

Do We Really Tip Based on the Waiter's Service?

For whatever reason, tipping is a subject that always seems to fascinate. Maybe it's because it represents a sort of shotgun marriage between economic behavior and "normal" behavior (i.e., profit-maximizing and altruism). In that light, a reader named Joshua Talley raises an interesting question. I am interested to hear your replies.

I've been a waiter for years.  I pride myself on providing prompt, professional service.  But I've always wondered how much the quality of service impacts the tip. Despite the notion that the tip reflects the quality of service, it seems likely to me that aside from instances of extremely good or extremely poor service, most people simply tip what they normally tip.  For instance, some people are 10 percenters, many are 15 percenters and some are 20 percenters, etc., and it takes either very good or very poor service to change this.  Am I right?

How Much Does a Good Boss Really Matter? (Ep. 107): Full Transcript

This is a transcript of the Freakonomics Radio podcast “How Much Does a Good Boss Really Matter?”  Jeremy HOBSON: It’s FREAKONOMICS time. Every two weeks, we talk with Stephen Dubner, the co- author of the books and blog about “the hidden side of everything.” Stephen, it’s good to have you back.   Stephen J. DUBNER: Thank […]

How Much Does a Good Boss Really Matter? (Ep. 107)

Our latest Freakonomics Radio on Marketplace podcast is called “How Much Does a Good Boss Really Matter?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) 

It's based on a recent working paper called “The Value of Bosses” (abstractPDF) by Edward LazearKathryn Shaw, and Christopher Stanton. In the podcast, you'll hear Lazear describe the basic problem:

LAZEAR: Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers, and it’s not so easy to tease out one effect from another.

So how can you measure the impact of the bosses? Data, people, data. And Shaw came up with a huge data set from a company that included roughly 23,000 employees and 2,000 bosses.

FREAK-Shot: Christmas Ornament Edition

Reader Tim Kelly sends in photo from a store in Lombard, Illinois:

As Tim writes:

I spotted an interesting sign while out Christmas shopping the other day.  The sign stated the company's "breakage policy," where any broken item must be bought, but that the store will only charge half price on the broken item.  The sign continued offered to repair the broken item, free of charge (I confirmed the free repairs from the shop owner, as it is not explicitly stated in the sign).

The sign was located on a mall kiosk selling Christmas ornaments.  I imagine breakage is a big issue for such a shop, as their product is relatively fragile and are highly enticing to bored kids stuck Christmas shopping with their parents.

My initial instinct upon seeing the sign was that this policy seemed to be inviting people to game the system.

In Response to Your Queries About Gun Violence…

We've gotten a lot of requests to comment on the massacre in Newtown, Ct., especially regarding the issue of guns. I haven't done so because I don't feel I have anything meaningful to contribute at this time, especially to the victims' families, except for my deepest sympathy.

I will point to some things we've already written on the topic: Chapter 4 of Freakonomics, pp. 130-133; a quorum on how to reduce gun deaths; and a Q&A with the photographer-author of Armed America. And we are starting to produce a podcast about gun violence, to be released sometime in the spring.

Wishing everyone a more peaceful holiday season than the tragic events in recent months have prepared us for...

Why "Peak Farmland" Is Good News

First there was "peak oil"; now there's "peak farmland." But it's not what you think. Reuters reports that a group of scientists from the Program for the Human Environment at Rockefeller University just released a report detailing their findings:

The amount of land needed to grow crops worldwide is at a peak and an area more than twice the size of France can return to nature by 2060 due to rising yields and slower population growth, a group of experts said on Monday.

The report, conflicting with U.N. studies that say more cropland will be needed in coming decades to avert hunger and price spikes as the world population rises beyond 7 billion, said humanity had reached what it called "Peak Farmland."

"Happily, the cause is not exhaustion of arable land, as many had feared, but rather moderation of population and tastes and ingenuity of farmers," says Jesse Ausubel, the study's lead author.

(HT: Free Exchange)

Economists Making Their End-of-the-World Confessions

Today is the last day on the Mayan calendar, which, according to some, means the world is going to end.  This seems about as likely to occur as any economic forecast.  And so in preparation, economists on Twitter have been making their end-of-the-world confessions, using the hashtag #EndOfTheWorldEconfessions.

Here are some of the highlights:

Is Changing the Coach Really the Answer?

Much of the focus today on college football is on the teams at the top.  Will Notre Dame win the national title and finish undefeated? Can Alabama win another championship?  Then there are the 34 other bowl games.  In all, 70 teams have an opportunity to finish the year as a winner.

For those without this opportunity, though, this past season was a disappointment.  For these “losers,” the focus these past few weeks has been strictly on preparing for the next season.  And part of that preparation appears to be changing the head coach.

Already, at least 25 schools have announced that the head coach from 2012 will not be on the sideline in 2013.  For some, this is because a successful team lost their coach to another program.  In many instances, though, teams have asked a coach to depart in the hope that someone else will alter their team’s fortunes.